MasterCard Earnings Growth To Slow As Per Latest Announcement

MasterCard earnings growth is forecasted to slow as per the company's latest announcement.

Interest rates have been at record lows for years. Which companies benefit the most from this? Credit card companies like MasterCard (NYSE:MA) and Visa (NYSE:V) among others. Credit card companies have a nice racket, I mean, business model. They obtain money at low interest rates and lend at exorbitant interest rates. You may not think of buying something with your credit card as a loan, but if you don't pay it off in full every month, then a loan is exactly what it is.

Money compounds fast at rates above 20% annually. When a lot of people are willing to pay excessive rates of interest, that makes for a highly profitable company. When the company can also charge you a multitude of fees, including late fees, over-the-limit fees, etc., then the profit potential is even higher.

MasterCard has solid financials. In the past two years, revenue has climbed 12-15% annually while earnings per share have climbed at a rate of over 20% annually. Mastercard's profit margin during the past twelve months was 39%, operating margin was 53%, and return on equity of 58%. While the P/E ratio is high for the trailing twelve months at 28, investors are willing to pay a premium for the steady growth of the company. With $1.5 billion in debt in the most recent quarter, the company pays low interest that it lends out at over 20%.

MasterCard stock fell sharply last month, like most stocks, but has since recovered about half of those losses. The stock reached a 52-week high of $98.18 on August 10. It fell to an intra-day low below $75 before closing the day at $87.83. For the past two weeks of trading the stock has been bouncing in a range of $90-94.

In spite of these strong results, MasterCard announced last week that earnings growth would slow in 2016-2018 to the "mid-teens", compared to over 20% in the past 2-3 years. The projected slower growth rate in MasterCard earnings appears to be giving pause to investors, who are holding the stock in a sideways range for the present time. The company's CFO mentioned higher tax rates as part of the reason for the slowdown. MasterCard also mentioned they will be using some of their profits to buy back stock. While this is a good use of company funds, it does lower profits in the short-term.

Like all U.S. companies that do business internationally, the strong dollar is slowing the company's sales in foreign markets. However, short-term currency fluctuations will not prevent MasterCard's continued growth in foreign markets. The company has also mentioned it is seeking to gain a larger share of the fast-growing market in China.

While investors will need to keep an eye on growth rates to see if they more slowing in the short-term, the long-term prospects for Mastercard continue to look bright.

American Express has lost their partnership deal with Costco. . Ecommerce payment processors such as Paypal, proving a threat. . Amex need a greater focus on savvy marketing and attention to consumer needs. .

Analysts estimate an EPS of $0. 85 on a revenue of $2. 38 billion. Mastercard’s revenue and EPS to face headwinds from strong dollar and declining oil prices. Mastercard is a fast growing company with very high profitability.

Twitter shares have been rallying strongly on news that MasterCard is interested in partnering with it in P2P payment service. Twitter has also been moving on news that it has won a pivotal deal to stream NFL games. Twitter might not be bereft of growth opportunities as the market imagines which makes it a good contrarian play.

Visa and Mastercard are a duopoly with more similarities than differences. Both have great balance sheets and similar valuation multiples. I have outlined a few subtle differences between the 2 companies so interested investors can make a decision.

I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours

I am not an investment advisor, and my opinion should not be treated as investment advice.

I am not being compensated for this post (except possibly by Amigobulls).

I do not have any business relationship with the companies mentioned in this post.

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